While some property investors seem to get it right all the time, others make mistakes. Especially first-time investors. Here are seven of the most common mistakes to be aware of so you can avoid making them yourself.
Starting without a strategy
You need a
game planThe single biggest mistake property investors make is simply buying an investment property without taking the time to work out what their future goals are or how they are going to achieve them. You need a game plan.
The first step is making a detailed analysis of your current income and tax position, as well as your financial goals for the future. Investment property becomes the second step – i.e. the vehicle to get you where you want to go. No architect would start building a house without a blueprint, and no engineer would start on a bridge without detailed plans. An investment property is a commercial business. So you need to be well prepared and have a clear business plan and strategy before you get started.
Buying property on emotion
You have to be
analytical & rationalYou have to invest using your head, not your heart. Investment property is a rational process. It involves property types, locations, affordability, and an understanding of the economic factors that drive area growth. It’s not a good idea to invest around the corner from where you live solely so you can “keep an eye on it”. Nor is it a good idea to buy a holiday house that you plan to rent out from time to time.
You have to be analytical, and rational. It’s very different from buying your family home. So avoid the temptation of investing in a property that’s too expensive or that you would like to live in yourself. And make sure you invest in the right kind of property, in the right area.
Choosing the wrong location
You have to do
your homeworkThe property market moves in a cycle or like a “property clock” across our towns and cities. While one market may be falling, another is ready for strong growth, and a third is approaching its peak. Choosing the right location and timing requires detailed research. In other words, you have to do your homework.
Capital gains and solid rental yields are your goals. Finding a property in a location that will achieve this consistently is no accident. High-performing investment properties are usually close to schools, infrastructure, transport links and other public amenities. The good news is that when you get the timing and the location right, you can enjoy strong short-term gains as well as excellent long-term returns.
Getting the financing wrong
You need to have a
realistic budget and
cash flow planInvestment properties are expensive and need to be financed, so there are many pitfalls for the unwary. Like using the same bank that finances your home mortgage, paying too large a deposit, or underestimating the cash flow requirements in the early years. You need to have a realistic budget, and have a buffer for unexpected events, like not having a tenant for a few weeks.
You also need to keep track of all your expenses, as these are tax deductible. For example interest costs, rates, insurance and maintenance. When you keep good records and use a tax agent who is an expert in investment property, you maximise the deductions and benefits you are entitled to at tax time.
Selling too soon
Keep your investment
property for 15, 20,
25 years – or moreSome investors enter the market with high expectations and hope to make a killing in a few years. This is property speculation rather than long-term property investment. When the quick wins don’t happen, they sell and move on, wasting lots of money on costs and fees in the process. And they pay capital gains tax on any profit they might have made. And end up without a property!
In Australia most property markets move in cycles that repeat themselves over periods of seven to 10 years. History shows that in many markets, property prices can double over this period So it makes sense to keep your investment property for 15, 20, 25 years – or even more – so that the cycles can work for you and deliver excellent capital gains over the long term.
Trying to self-manage the property
Leave managing the
property to the
professionalsEven if you do everything else right, trying to manage your own investment property can be a recipe for disaster. It is a very specialised field, and the amount of knowledge and experience needed for successful property management should not be under-estimated. This is a job best left to the professionals, and when investors try to manage their properties themselves, it often ends in tears.
Your property manager knows the market best and can advise on the right rentals for the area. They advertise your property, screen the tenants, show them through the home, and send you a tenant recommendation. They also do regular inspections, attend to anything that goes wrong or needs fixing, collect the rent for you, and send statements of all income and expenses for your records. Aside from saving you from all this hassle, your property is a valuable asset that needs to be well-maintained and looked after at all times.
Choosing the wrong agent
to the best property
Property management fees range from 7% to 10% of the monthly rental. As with all things, you get what you pay for. Some investors make the mistake of choosing an agent who offers the lowest fees. Cheap fees from a property manager will only result in a poor level of service and ongoing frustration for the owner. Quite simply, they can’t afford the time to do the job properly when they charge too little for their services.
Your property is very valuable, and it produces income for you. It needs to be well looked after, leased to the best possible tenants, at the best possible rental, all the time. You need to entrust your investment property to the best property manager available, and be prepared to pay at least the market rate to get the best results.
Getting it right
McCarthy Group has a 15-year track record of helping clients get it right in investment property. Don’t believe us? Visit our website below to read what our clients have said about how their experience with McCarthy Group has helped change their lives for the better. And see more testimonials on our Instagram page below.
The first step on the investment property journey is knowing where to start. Contact us for a free consultation, and an obligation-free assessment of your position at the details below. If you decide to go ahead, we’ll be with you, every step of the way.
A typical McCarthy Group home
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1300 850 318
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